Debt versus liability

Debt, Leverage, Liabilities

I have written earlier that I have been reading this book, Killing Sacred Cows…… by Garrett Gunderson.

Based on my own life experiences , where I was in so much debt from all sides , I have come to a conclusion that I will not take any debt for consumption items, especially credit card debt. Wherever I do have to use my credit card, because of “single shot” payments, I ensure that I pay it out within the period of free credit.

Otherwise I am absolutely against borrowing money and taking leverage of any kind.

Garrett on the other hand has come up with a very interesting take between liability and debt.

He says you will always have to take a liability to get an asset. One cannot exist without the other. If the liabilities exceed the assets you have then its debt. You should get rid of this debt at the earliest.

On the other hand if you can service the liabilities with your cash flow and it helps increase your assets then you should borrow. Effectively if you are buying a productive asset rather than a consumption asset, then you should borrow. As per him if you have to leverage your ability to add more assets then you should borrow.

Now in some situations there can be a thin line between consumption and production.

I am right now thinking about how do you go about classifying expenses as being done for productive reasons. Some could be clearly identified such as having one car to improve mobility versus three cars for lifestyle. Even that could be debated by some though.

But how should I look at taking a holiday to get new experiences. The experiences help me de-stress and therefore make me more productive in the long run. Should I be willing to borrow to fund the experiences rather than directly fund with cash and liquidating some assets.

I need to get a wrap around this idea. It could actually be a game changer.

Will keep you posted.

Till next time then.

Carpe Diem!!!

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